How Interest Rate Hike Could Impact Supply Chain Finance

The markets are abuzz with the Fed’s recently raised interest rate following years of near-zero levels. While the rate increase has the potential to impact virtually everyone, new analysis says it can have a significant effect on supply chains and on how companies finance them.

An article published in IndustryWeek over the weekend noted that businesses everywhere will need to up their cash management game in response to the interest rate increase. But players within the supply chain — the transport of goods — can take advantage of strategic trade financing tools, reports said.

“Orchestrating the end-to-end cash flow velocity and supporting transactions is critical to enhancing working capital, reducing risk and improving markets,” the article stated. Logistics, freight and freight spend will be particularly vulnerable to a lack of transparency and visibility into their financial transactions.

Electronic payments may be key to improving this visibility, reports said. “An integrated, fully electronic freight payment system can help businesses uncover cost savings, increase financial control and gain valuable insight into freight expenditures, with more detailed information at a very fine level of granularity, helping to achieve your cost-to-serve goals,” stated the article.

Electronic payments and greater transparency and control over transactions within the freight shipping and goods transport industry means more effective use of cash and resources, it added.

Shippers and other logistics and transport players should be working towards a fully streamlined, single portal through which all transactions are processed, allowing visibility for both shipper and carrier, the author suggested. First, that means getting rid of paper invoices and their proneness to errors in manual data entry that go along with it.

Further, the article posed, supply chain financing should be viewed as a strategic way for players within the supply chain to effectively and efficiently manage their capital. And with interest rates now raised, companies are under pressure to cut costs — an area, the article said, can be achieved within strategic supply chain operations.

[bctt tweet=”‘The importance of disciplined working capital practices cannot be overstated.'”]

“As companies face increasingly complex global supply chains, the importance of disciplined working capital practices cannot be overstated,” the report stated.